LONDON — A consumer group has called on the operators of energy and electricity networks to return £7.5 billion of “unjustified profits” over eight years in the form of a £285 rebate to each UK household.
Citizens Advice published research on Wednesday, finding companies transmitting gas and electricity around the UK — such as the National Grid — were reaping an “eye-watering” average profit margin of 19%.
That compares to the 4% average profit margin made by the “Big Six” suppliers selling gas and power to UK households.
Citizens Advice says the disparity is driven by the fact the UK’s gas and energy networks are regulated monopolies while gas and power suppliers are forced to compete with one another on prices.
The report said Ofgem, the energy regulator, had made three key decisions which allowed energy companies to earn inflated profits:
- Ofgem overestimated the business risk for investors in energy networks at a cost of £3 billion to consumers;
- Ofgem assumed interest rates and returns for government bonds would be higher than they were at a cost of £3.4 billion;
- The financial incentives Ofgem put in place to reward efficiency — such as allowing firms to keep some of the underspend on projects as profit — simply rewarded companies that inflated their initial estimates for the cost of staff and materials, at a cost of £1.1 billion.
The charity said energy firms should issue the £7.5 billion back to UK households in the form of a one-off £285 rebate, which is approximately one-quarter of the average household’s annual bill.
Gillian Guy, chief executive of Citizens Advice, said: “Energy network firms are enjoying a multi-billion pound windfall at the expense of consumers.
“Decisions made by Ofgem have allowed gas and electricity network companies to make sky-high profits that we’ve found are not justified by their performance.
“Through their energy bills, it is consumers who have to pay the £7.5 billion price for the regulator’s errors of judgment. We think it is right that energy network companies return this money to consumers through a rebate.
“If energy network companies fail to return these unjustified profits to the consumers that paid for them then the government should consider stepping in,” he said.
Business Insider Emails & Alerts
Site highlights each day to your inbox.